Offshoring tales from across the land

Writing about offshore outsourcing for a public audience carries many, many perks. One of them is getting e-mails like this one:

Since you seem to be a proponent of outsourcing, perhaps you would care to explain the national deficit and the fact that the United States in now the single biggest debtor nation in history. Your facts or lack of same simply do not wash.

OK, I’m confused — are my facts wrong, or is it that I don’t have any of them? Really, it’s very hard to keep track. Seriously, I also get more interesting anecdotes about those who experience outsourcing first hand. Consider this e-mail from a colleage who is in the middle of getting a book published:

I’m doing a book with Palgrave, and it turns out they’ve moved their entire production back-office operation to India. What I found interesting about this is that we generally think of the U.S. as high-tech and professional, and poor developing countries as more cottage-industry-ish. The opposite is true in this case. Copyediting here tends (in my experience) to be done in cottage-industry fashion, with the manuscript sent out to an individual who works for the publisher on a piecework basis. The Indian copyediting operation is high-tech (our interaction involves no paper, and they’ve taught me about all sorts of things that I had no idea one could do with Microsoft Word), corporate (there were no fewer that six people working on my manuscript, with a clear division of labour – an endnote person, a bibliography person, a grammar person, a ‘sense and meaning’ person, and one person whose sole job seemed to be to take out extra spaces after periods [I have a habit of double-spacing after periods]), and highly professional (they’re really a pleasure to work with). Also, their English appears to be better than that of the average American copyeditor. So, in this case, not only has offshoring resulted (presumably) in lower costs for Palgrave, it’s also likely to result (and I’m typing this with crossed fingers, because the process isn’t finished yet) in a better book.

This is pretty interesting, in that the process that’s described is not only about offshore outsourcing — it’s also about the fact that what used to be considered a complex task (the cottage industry of copyediting) has been segmented into a lot of very simple tasks (the person whose sole job it is to shorten the spaces after a sentence, for example). It’s both high-tech AND low-tech. This reminds me of something…. oh, yes, Karl Marx’s Wage Labour and Capital (1849):

The greater division of labor enables one laborer to accomplish the work of five, 10, or 20 laborers; it therefore increases competition among the laborers fivefold, tenfold, or twentyfold. The laborers compete not only by selling themselves one cheaper than the other, but also by one doing the work of five, 10, or 20; and they are forced to compete in this manner by the division of labor, which is introduced and steadily improved by capital. Furthermore, to the same degree in which the division of labor increases, is the labor simplified. The special skill of the laborer becomes worthless. He becomes transformed into a simple monotonous force of production, with neither physical nor mental elasticity. His work becomes accessible to all; therefore competitors press upon him from all sides. Moreover, it must be remembered that the more simple, the more easily learned the work is, so much the less is its cost to production, the expense of its acquisition, and so much the lower must the wages sink ? for, like the price of any other commodity, they are determined by the cost of production. Therefore, in the same manner in which labor becomes more unsatisfactory, more repulsive, do competition increase and wages decrease…. The economists tell us, to be sure, that those laborers who have been rendered superfluous by machinery find new venues of employment. They dare not assert directly that the same laborers that have been discharged find situations in new branches of labor. Facts cry out too loudly against this lie. Strictly speaking, they only maintain that new means of employment will be found for other sections of the working class; for example, for that portion of the young generation of laborers who were about to enter upon that branch of industry which had just been abolished. Of course, this is a great satisfaction to the disabled laborers. There will be no lack of fresh exploitable blood and muscle for the Messrs. Capitalists ? the dead may bury their dead. This consolation seems to be intended more for the comfort of the capitalists themselves than their laborers. If the whole class of the wage-laborer were to be annihilated by machinery, how terrible that would be for capital, which, without wage-labor, ceases to be capital! But even if we assume that all who are directly forced out of employment by machinery, as well as all of the rising generation who were waiting for a chance of employment in the same branch of industry, do actually find some new employment ? are we to believe that this new employment will pay as high wages as did the one they have lost? If it did, it would be in contradiction to the laws of political economy. We have seen how modern industry always tends to the substitution of the simpler and more subordinate employments for the higher and more complex ones. How, then, could a mass of workers thrown out of one branch of industry by machinery find refuge in another branch, unless they were to be paid more poorly?

Sounds very dire…. except that Marx, for all of his understanding of the forces behind technological innovation, never really got the idea that such innovation also creates entirely new categories of complex, high-skill jobs. It took Schumpeter to figure that one out. [Er…. what about the demise of copyediting jobs? Doesn’t that mean that offshoring leads to a net loss of employment?–ed.] Not according to AFP:

The outsourcing of technology jobs to low-wage countries will provide a $68.7-billion (U.S.) benefit to the U.S. economy in 2005, said a study released yesterday, challenging key assumptions about shifting work offshore. The study, updating a report released in 2004 drawing the same conclusion, was commissioned by the Information Technology Association of America, a high-tech industry group, and conducted by research firm Global Insight. The report concluded that despite the loss of some jobs to low-wage countries such as India, that worldwide sourcing of IT services and software generated 257,042 new U.S. jobs in 2005. “No one is denying that there are job losses, but the net effect is that you create more jobs than you lose” in the overall economy, said Nariman Behravesh, chief economist at Global Insight and lead author of the report. The benefits come from lower inflation, higher productivity and lower interest rates that boost economic activity, the report concludes. The researchers calculated this provided a net benefit to real U.S. gross domestic product of $68.7-billion in 2005, and that this would rise by 2010 to $147.4-billion compared with a situation without any offshore outsourcing. “The main thing is cost savings which radiate out in the form of lower prices for high-tech goods, and higher profit margins for the companies,” Mr. Behravesh said. “So you have lower inflation, which means higher real income; you have higher profits. Companies use higher profits to invest more; consumers use higher incomes to purchase more . . . all these produce a much stronger economy and produce more jobs than the offshoring destroys.” In terms of jobs, the report concluded that offshore outsourcing led to the creation of more than 419,000 jobs, more than offsetting the 162,000 technology jobs displaced by the shift.

[That’s the number of jobs; what about wages?–ed.] The Global Insight page offers this tidbit on wages:

Workers enjoy higher real wages. Global sourcing adds to the take-home pay of the average U.S. worker. With inflation kept low and productivity high, worldwide sourcing will increase real hourly wages in the U.S. by $0.06 in 2005, climbing to $0.12 in 2010.

Click here to read the executive summary of the Global Insight report — and click here to read my take on the 2004 version of the report.